An Advisor's Guide to Long-Term Care

There is one thing that can be deadly medicine to the financial health of even well-prepared clients: long-term care. This year, the number of men and women over the age of 65 who will need long-term care will hit nine million, or about 3 percent of the nation's total population. By 2020, the number is expected to rise to 12 million. A study by the U.S. Department of Health and Human Services says

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There is one thing that can be deadly medicine to the financial health of even well-prepared clients: long-term care.

This year, the number of men and women over the age of 65 who will need long-term care will hit nine million, or about 3 percent of the nation's total population. By 2020, the number is expected to rise to 12 million. A study by the U.S. Department of Health and Human Services says that people who reach age 65 have a 40 percent chance of entering a nursing home at some time in their lives, and about 10 percent of the people who enter a nursing home will stay there five years or more.

These are sobering statistics, and rendered all the more so when you factor in the expense of long-term care. Medicare generally doesn't pay for “custodial care” and Medicaid payment requires the exhaustion of most of the patient's personal financial resources.

Because long-term care is such a complex and alien territory, many financial advisors (like their clients) avoid it. This, of course, is unwise.

Knowledgeable financial advisors need to help clients estimate their specific risk — including the risk for people that the client is financially responsible for. This includes determining how long-term care would be financed and arranging assets so that adequate funds will be available if the need arises.

Work the Steps

Step one would be to create a potential needs profile of each person for whom the particular client would consider himself financially responsible. These are most likely to be spouses and aging parents, but could include severely handicapped children, siblings, grandparents, former spouses and other relatives. The important thing is to be aware of each and every individual and to keep track of him or her as time goes on.

Next, the advisor should handicap each person's candidacy for long-term care. This means venturing into touchy territory — a family's medical history. It's hard to open such conversations, but they can be phenomenal tools for strengthening ties to a family, if handled correctly. The handicapping process should include a search for diagnosis or strong family history of conditions such as stroke and neurodegenerative diseases (Parkinsonism or Alzheimer's dementia, traumatic brain injury). Essentially you are looking for any condition that is severely disabling but not rapidly fatal, since these are what typically require long-term care.

The third step is to evaluate a family's financial preparedness for long-term care. Financially, high risk equals low net worth (current or potential), plus a lack of long-term-care insurance coverage. Psychologically, the client needs to decide if Medicaid, with its necessary “spend-down,” is considered acceptable.

At this point, it should be evident if the client's overall risk for having to pay for someone's long-term care (including self) is unusually high or just average. This information should give rise to an estimate on what would be necessary to cover a worst-case scenario, which in turn should spawn a discussion on if and how the client wants to fund a worst-case plan.

“You can buy insurance for anything, including your big screen TV. But not everyone buys the insurance and not all insurance guarantees you will not take a big financial loss,” says George Kempf, a wirehouse advisor based in Carmel, Ind. “My job is to help clients ‘avoid the bullet’ by helping to forecast worst-case scenarios in all aspects of their planning — including long-term care.”

The problem in getting to this point is that few people are willing to face up to the conditions requiring long-term care until it is too late to purchase adequate coverage or when the cost is prohibitive. Even fewer families have discussed the action plan in the event of a medical condition requiring care. As we have discussed in prior columns, an ounce of preparation can be worth a ton of “cure.”

A Healthy Plan

The first part of getting clients to address long-term care issues is to get them to answer the following questions:

What type of care?

The general rule of thumb is that the more you depend on out-of-home health care providers, the higher the cost. Home health care supplemented by a care aide or nurse is much less expensive than a long-term facility like a nursing home. Continuous care retirement facilities (CCRF) provide an “annuity” of living options, with the ability to stage from an autonomous home or apartment to assisted living and on to the full-time nursing center. Issues confronted in this arena include family preferences and the individual's desire for independence, as well as the type of health care condition.

Who will provide the care?

This is a hot potato for most families. Geographically diverse families can get caught in disproportionate burdens, disparities in net worth can spawn battles over costs and religious and generational differences can undermine the best intentions of family members to work together. Discuss various scenarios now.

How will the care be funded?

Ken Dychtwald of Age Wave estimates that 70 percent of boomer households have yet to hold a detailed discussion with their parents about the parents' financial situation. If your boomer clients are to become financially responsible for their parents' care, that information is best known today. Some boomer clients have purchased long-term-care insurance for their parents, while others are prepared to insure the costs of a CCRF (which would require a substantial amount of liquid funds).

Where will the care be provided?

Significant expense and emotional distress can be avoided by a practical discussion of location. Notes one caregiver: “When you get older and your health is failing, often the only people who will visit you are family.” For this reason, it is often a smart move to locate a long-term care facility near the homes of the children.

Long-term care is a tough issue for families and their financial advisors to face. It requires facing up to human frailty and addressing the possibility of spending hard-saved retirement funds on the most unglamorous of services. Still, the advisor who fails to prepare his clients adequately for their health care costs is not fulfilling his duty to them. He also is missing an opportunity to solidify relationships with new generations of clients and to make sure there are still family funds left to manage after a parent's long-term care needs are taken care of.

Glen E. Gresham, M.D., is professor emeritus of rehabilitation medicine at the University at Buffalo, The State University of New York.

Jane and John and LTC

At a social occasion, John Elderworth draws his friend, a retired physician, aside and reveals his concern about “what Jane and I should do about our living situation.” They agree to meet at their club for lunch and discuss the matter. (John and Jane's situation is real, but their names have been changed for this story.)

Over lunch, John and Jane's situation turns out to be less than unique. In their 70s, with a number of chronic health problems, they have finally decided to part with their charming-but-too-large old house. They also need to decide what to do about their Florida condominium and come up with a plan for coping with new health problems. Their children are adamant that all this can be postponed no longer.

Some gentle questioning adds more: Jane is sick and tired of preparing meals (she grew up with servants and still has a cleaning person, but a full-time cook is a long-gone luxury). They do not want to move to Florida even though they love their condominium. They have explored buying long-term-care insurance but were stunned by the premiums and are “thinking about it.”

John Elderworth has talked with his attorney, his and Jane's physician, each family member and his financial advisor. Once this was done, the obvious answer seemed to be a continuous care retirement facility (CCRF). The sale of their house would cover the purchase of an adequate apartment, while their net worth and income would take care of the other upfront and monthly costs. Jane Elderworth's 95-year-old mother has adequate resources of her own to cover her nursing home care indefinitely. The children are able (and willing) to join in a sharing plan for the condominium.

The most important thing, however, is this: Neither John nor Jane have yet developed a health problem of sufficient magnitude to preclude their meeting the health, as well as the financial requirements, for being accepted by the CCRF of their choice. They still have a full range of options although time is running out.

Several months later, the friend hears the follow-up. The old house sold for a decent price, the Elderworth's passed the health and financial screens and are now settling in. They miss some of their old life but enjoy their new friends, the restaurant-type meals and, most of all, the peace of mind of knowing that if either if them should need long-term care, it is guaranteed with no increase in their monthly payments.

This felicitous outcome would have been impossible if any of the following had happened:

Either of them couldn't pass the health evaluation.

Their net worth (including house and condominium) and achievable monthly income had been inadequate to cover all the upfront costs and guarantee the monthly payments indefinitely.

The children had been unwilling to work out a plan for the condominium.

Jane's mother's long-term care had not been already provided for.

They had dithered too long and one of them had a stroke or other actuarially unacceptable condition. — SDG

At a Glance: LTC Planning

Step One: Create a potential needs profile of each person for whom the particular client would consider himself financially responsible.

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